In an interview, European Central Bank Vice-President Luis de Guindos discussed the ECB’s Financial Stability Review and policy outlook, arguing that European banks have weathered recent shocks well due to post-crisis reforms and stronger solvency, while warning that vulnerabilities are building in market valuations, non-bank finance and public finances in some euro area countries. He also reiterated that the current level of interest rates is appropriate based on inflation, projections and monetary policy transmission, while stressing that decisions remain data-dependent. On markets, he pointed to compressed equity risk premia, very low volatility and gains concentrated in the “Magnificent 7”, warning that valuations could correct if the practical rollout of artificial intelligence disappoints or if the benign geopolitical and monetary-policy narrative priced by markets does not materialise, even if conditions do not resemble the dotcom era. He highlighted rising leverage in hedge funds and low liquidity buffers that could amplify redemption pressures, and flagged the growth of private equity and private credit markets that are not supervised and have opaque and illiquid portfolio valuations, with banks having significant exposures to these non-bank segments on both the asset and liability side of their balance sheets. He called for global regulation and a more integrated European approach to supervising markets and non-bank institutions, rather than reliance on national securities authorities, and warned that difficulties approving budgets could undermine the credibility of medium-term fiscal plans amid a euro area fiscal deficit of 3% and debt-to-GDP of 90%. De Guindos said the ECB High-Level Task Force on Simplification will submit a report to the Governing Council by the end of the year and, if approved, send recommendations to the European Commission across capital structure, reporting and supervision, including reducing the number of capital buffers and applying more proportional approaches for smaller banks and stress testing without lowering overall capital requirements. He also described the digital euro as a non-interest-bearing means of payment intended to complement cash and reduce dependence on US-based payment methods.
European Central Bank 2025-12-01
European Central Bank Vice-President outlines financial stability risks and readies end-year regulatory simplification recommendations
ECB Vice-President Luis de Guindos discussed the Financial Stability Review, noting European banks' resilience but warning of vulnerabilities in market valuations and non-bank finance. He highlighted concerns over compressed equity risk premia, rising hedge fund leverage, and unsupervised private equity markets, calling for global regulation and a more integrated European supervisory approach. De Guindos also mentioned the ECB's Task Force on Simplification and the digital euro's role in complementing cash and reducing reliance on US payment methods.